LivingSocial Dishes About Deals at AsiaD

While AllThingsD is just making its debut in Asia, LivingSocial has been on the ground for a while here, recently scooping up deal sites in Thailand, Korea and elsewhere.

CEO Tim O’Shaughnessy is being joined on stage by Daniel Shin and Paul Srivorakul, the heads of the two Asian acquisitions, to talk about things here as well as some of the broader issues of overload, fatigue and competition facing the deals industry. I think the word “Groupon” might come up once or twice as well.

2:48 pm: Good afternoon. Joining Ina and the gang a minute or two late.

Tim is explaining the evolution of daily deals — and the room left for growth in the industry.

Ina: You guys pioneered the use of “instant” deals to dump off unsold inventory right away. How’s that working out?

Tim: It’s live in 15 cities so far. We’re “starting to see some pretty strong growth.” For consumers, “it’s really a paradigm shift that has to occur” — when they think about going to lunch, they don’t think about LivingSocial. But three and a half years from now, we want LivingSocial to be the first place they go.

Ina: Give us all the details about your next funding round. Kara commands it.

Tim: Like Dave Goldberg said, “everybody gets funding at some point in time.”

Ina: Private versus public — what’s your preference?

Tim: Obviously, being private gives you more flexibility. It lets us try out things like Instant, because our investors are comfortable with experimentation, etc.

Ina: So what does Groupon’s IPO mean for you?

Tim: It gives them something to worry about that we don’t have to worry about. But obviously there are good things about going public, too.

Ina: So when are you going public?

Tim: Like Dave Goldberg said … But you’re not going to see an S-1 from us tomorrow.

Ina: Daniel, Paul, talk a bunch, ok?

Daniel: I grew up in the States, and when I moved to Korea, the fact that Korean venture wasn’t really as developed helped us. And the group-buying concept made a lot of sense once we started talking to merchants. We launched Ticket Monster in May 2010 with $10k in capital. We grew very quickly — we did a lot of things that LivingSocial is doing. We expanded product categories quickly. Right now, local business makes up a meaningful part of our business, but not the majority. And linking up with LivingSocial made a lot of sense because it allowed us to expand all over the world.

Ina: And now you’re in the shoe business?

Daniel: Heh. We launched a fashion shoe site a week ago.

Paul: Our market is still in its infancy. We funded a digital agency as well as an ad network. And when we saw the daily deal market in January, we realized right away how much potential there was — how it connected advertising directly to sales.

We funded the company — my two older brothers and I — with $100,000.

My middle brother is the CTO. My oldest brother does sales. We started in Thailand first. It’s changing how consumers behave. Someone walked into our office, holding a phone, showing us a picture of a deal he wanted. This model has leap-frogged the traditional e-commerce model.

In a lot of our markets, we had to start with ATM transfers, because we didn’t have enough trust built up to do credit card deals. But now we’re getting there — in Indonesia, we do phone payments.

Ina: So how far can you push into new markets once you have this customer relationship?

Tim: We’ve got a giant megaphone in every city we work in — more subscribers in most cities than the daily newspaper for that town. So that’s a valuable communication mechanism.

So far it’s been a big landgrab, planting the flag both in the U.S. and internationally. But the next evolution of the business will be about bringing technology into the ecosystem, and bringing the offline part of this into the experience.

Ina: Give me examples of deals that worked in one country that you ported to other markets.

Paul: We’ve learned a lot from TicketMonster and from LivingSocial. LivingSocial in particular has given us a three-year head start, technologically speaking, from our competitiors.

Ina: And have international markets affected how LivingSocial has done work in America?

Tim: A little bit. You see the ways that people operate, the stuff that they sell — half of our employee base is overseas, so it’s hard not to be influenced.

Ina: Amazon is now an investor and a channel for you. How’s that working?

Tim: We power Amazon Local. It gives our merchants a chance to appear on other places, so that’s good. And Amazon knows a lot about e-commerce, so that’s very very helpful.

Ina: And now Amazon is doing deals on its Kindles — what does that mean for you guys?

Tim: I think it means consumers will accept ads if they get something cheaper or free — that’s a model that’s proven out over time.

Ina: What about deal fatigue?

Tim: The signal-to-noise ratio is off on that, based on the data we see. “We see very very strong performance” on our deals — that’s why we can invest so heavily on this stuff. Our share of wallet will go up over time — we’d be doing a bad job if it wasn’t.

Ina: Jack Dorsey was on earlier talking about building an intelligence network for stores, via Square. It seems like you are doing analogous stuff — does that make him a competitior?

Tim: It’s pretty early to see where Square is going. But overall, “the merchant business is going to be massively disrupted” in the next couple years. Right now they all have tons of different systems, none of which are very compatible, or easy to modify. Think about how much pain is involved in that.

Ina: In a year, are we still going to think of you as a daily deal company, instead of local commerce, etc?

Tim: In three to five years, if consumers want to interact with a local business, and they’re not actually there — we want them to come to us.

Q&A:
Q: If you did go public, how would your S-1 differ from Groupon’s? What metrics would you use?

Tim: People have lots of questions about profitability — regardless of S-1 issues. But “that story can be told in a very very strong way … and that story will get heard over time, more and more.”

Ina: So daily deals is a real, strong business, not just an abitrage/float business.

Q: What’s your China approach, compared to Groupon?

Tim: So far “a lot of observation.” We look around at different markets, and every six months, we consider a new market, and if we think we can be profitable in 24 months, we go in. But we haven’t seen that yet in China.

Ina: Other big markets you’re circling around?

Tim: We’re in 25 countries so far. There’s probably double that with the right characteristics, but we have to be disciplined about our approach.

Ina: How much demand are you getting from customer retention tools, as opposed to customer acquisition?

Tim: So the first part is to get people through the door. And we take retention seriously, but “working down that funnel” requires a lot of technology investment down the line. Consumers get the paradigm of punchcards/loyalty cards, and there hasn’t been a digital version of that. But that will come.

Paul: We have a loyalty rewards program — cash back for customers. That works well for retention.

Daniel: In Korea, we’re sponsoring punchcards for our merchants. But one day we’ll move that to a digital app. Also we want the coupons to be easier to use — that will make the transaction more accurate, and easier to track.

Ina: How big is mobile to your future?

Tim: “I think of mobile devices as walking local devices.” Our best users, a disproportionate number of them, purchase through mobile apps. And ratio of purchases via mobile is growing at a point a month. Right now mobile is still a minority, “but it’s well into double digits.”

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